Corporate reporting is increasingly becoming an instrument for effective communication with stakeholders and investors.
However, the art of mature corporate reporting is still to find its feet in the corporate world and business culture in Zimbabwe as a contemporary instrument.
While corporate reporting is understood from different perspectives, corporate reporting in the new age of corporate transparency set on two aspects in annual reports which encompasses the broad reporting of non-financial information relating to corporate governance, economic, environmental and social impacts and opportunities in addition to normal financial information.
This trend is adversely the opposite of what is regarded as corporate reporting in Zimbabwe through annual reports which are largely financial with very little to show on non-financial reporting or sustainability reporting. The context of corporate reporting culture in Zimbabwe cannot be sustained any longer, if the country is to attract the much needed foreign direct investors into the struggling economy.
However, this article is aimed at challenging the corporate and business world in Zimbabwe to take a serious look at the corporate reporting culture with a view to consider taking action toward honest and effective corporate reporting in Zimbabwe like in South Africa, if local companies are to attract meaningful and serious investors.
The rest of this article is structured to largely provide a contextual analysis of corporate reporting practices in Zimbabwe, the business case for effective business reporting and global practices towards effective or mature corporate reporting.
Corporate reporting in Zimbabwe
The extent of corporate reporting in Zimbabwe has been largely financial reporting unlike real corporate reporting where an organisation seeks to communicate to its stakeholders on both financial and non-financial matters (sustainability reporting).
Corporate reporting through annual reports in Zimbabwe can be categorised to fall in the levels of basic or infants reporting.
It largely reflects just meeting basic requirements of International Financial Reporting Standards (IFRS) which provide for the Statement of Comprehensive Incomes, Statement of Financial Position, Statement of Cash Flows, and Statement of changes in Equity under International Accounting Standard 1: Presentation of Financial Statements (IAS1) in addition to the Chairman Statement and the Chief Executive Officer which tend to cover the Operating Financial Review (OFR) as part of management commentary.
A good corporate annual report in Zimbabwe is perceived to be one that ensures all IFRS requirements boxes have been ticked. This perception is largely misguided to the extent that many annual reports have tended to be company value destroyers than value creators. Many annual reports lack details or information useful to investors and stakeholders, creating a trust void.
Imagine an investors’ sitting may be in Europe, Canada, America, Australia or China reading annual reports from Zimbabwe that does not show the company’s business model, key markets, products and services, profiles and qualifications of directors, risk and opportunities, company strategy, company’s stakeholders and their material issues of concern with the company. Such reports do not add value to an investors’ decision.
Many investors have had to consider due diligence by foreign expert before making any investment decisions. Some investors have paid a huge price to invest in jurisdiction with a poor corporate disclosure culture due to unreported and social risks hence investors preferring countries with high level of corporate transparency like South Africa for investment. Consequently, the national economy and capital markets in Zimbabwe have continued to pay the price of poor corporate disclosure.
Majority of annual reports in Zimbabwe tend to be addressed to Shareholders while ignoring other stakeholders. This is confirmed by majority of annual reports containing largely financial information.
Observations have shown that more than 80% of average annual report content in Zimbabwe is largely financial information of which more than 70% is information on Notes to the Financial Statement including extracts about IFRSs.
There tend to be very little, if nothing at all about company strategy, identified non-financial risks, performance data on environmental impacts (ie waste, electricity usages, climate change response, water usage etc.) , social impacts (communities, labour, gender, human rights, health & safety), and corporate governance (code and its implementation, board performance, director profiles and balance of skills in the board etc.).
On the other hand, there is a perception that a good corporate report is one that shows millions of super profits. Interestingly, very little, if any, tend to disclose how responsibly the profit has been made without impacting or minimising impacts on stakeholders, the environment or violating social and community rights.
In most cases, social liabilities tend to go unreported to investors and shareholders, only to start resurfacing many years later. According to Susan Stormer, vice president of Corporate Sustainability, Novo Nordisk, a culture of poor corporate reporting is ‘like a pregnancy, cannot be hidden for long. And even now, stakeholders will find out one way or another, and you can no longer control communication that’s coming in and out of your organisation’ (Wiebe, 2015).
There is also an academic saying that ‘bad companies also report badly’ which tend to be reflective of some companies in Zimbabwe. This context in Zimbabwe is now an urgent issue than before if the economy is to attract investors with countries like South Africa, Kenya, Nigeria, Mauritius and Egypt who attract much of FDI to Africa. There is no doubt that South Africa has mature culture of corporate reporting which has largely contributed to effective shareholder activism and strong business leadership.
The poor corporate reporting culture in Zimbabwe is largely attributed to poor shareholder activism, powerless stakeholders and weak report frameworks and values to drive effective corporate reporting beyond just complying with IFRS.
Consequently, many shareholders and stakeholders have presided over annual general meetings (AGMs) with little information or with little done to ask directors on the extent they have impacted on the environment and social issues, and how they are going to be accountable on their impacts Consequently, many business leaders in Zimbabwe tend to struggle to appreciate how effective and good corporate reporting create business value. As such, many companies in Zimbabwe have remained largely undervalued.
Effective corporate reporting
For economies and capital markets in emerging economies that have continued to attract long term investors, effective corporate reporting to shareholders, stakeholders and investors has remained a corner stone. Effective corporate reporting based on providing a balance of non-financial and financial information has potential to bridge corporate disclosure void and mistrust. According to an Ernst & Young (2013), good corporate reporting has potential for access to long term capital, enhances financial performance, builds reputation and helps to minimise corporate disclosure risks. Good corporate disclosure helps build trust from stakeholders and investors.
Companies with poor corporate reporting practices tend to be good targets for WikiLeaks. Effective corporate reporting help minimise the threat of bad things being discovered. However, according to Ernst and Young LLP (2013), good corporate reporting helps companies identify opportunities for revenue growth and cost containment by considering good feedback on annual reports from stakeholders.
Effective corporate reporting has potential for building brand name and competitive advantage. Global companies like Rio Tinto, BHP Billiton, Veolia Environment, Vancouver City Saving (Vancity), Novo Nordisk, Telefonica S.A, Vodacom and Safaricom Kenya have built their brand names based on their good reporting culture.
Safaricom is one of the few companies in Africa that produce their annual report in a local language, Swahili and has a long standing history of sustainability reporting using international guidelines like the Global Reporting Initiatives (GRI). This practice brings Safaricom close to its stakeholders through the spirit of inclusivity and responsiveness demonstrated in their corporate reporting culture.
Global practices in corporate reporting
Corporate reporting practices have been evolving around the world to the extent that the International Federation of Accountants (Ifac) formulated the ‘Guiding Principles on Effective Business Reporting’ to guide accounting professional to appreciate values of a good corporate report which contains a balance of non-financial information or sustainability reporting and financial reporting (guided by the International Accounting Standards Board (IASB)).
Many companies around the world have been moving towards using the Global Reporting Initiative (GRI) — Sustainability Reporting Guidelines for reporting on non-financial information in either as stand-alone reports or using integrated reporting. To drive effective reporting, the European Union issued EU Directive 46 on Non-Financial Information reporting by companies. In capital markets like the Johannesburg Stock Exchange, the Listing Rules provides instruments for corporate reporting.
In conclusion, attracting Foreign Direct Investment (FDI), financial capital and investors will largely depend on swift action to improve corporate reporting culture in Zimbabwe, developing a strong business leadership culture and values.
Further, without improving the framework for effective corporate reporting and high transparency through effective business reporting, many companies will remain undervalued and investors will continued to shun local company or consider importing business leadership who live to global values of corporate reporting.
For many local companies, they will continue to be purchased for a fraction of their real value, hence understating the real value of the local capital market and the national economy.
The articles are coordinated Lovemore Kadenge, president of the Zimbabwe Economics Society (Zes). email email@example.com and cell +263 772 382 852
Rodney Ndamba Head of the Institute for Sustainability Africa (INŚAF).